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How a Stalled Economy Could Force Mortgage Rates to Rise?

Posted by  on Apr 21, 2009
 

Homeowners wondering whether to stall their refinancing plans recently heard new advice from economists. With mortgage rates already at generational lows, banks and other lenders may have little choice in the future but to charge higher interest on new home loans. If you've been thinking about switching from an ARM to a fixed rate mortgage, the next few months could be critical.

Throughout the first half of the decade, federal policymakers artificially reduced mortgage rates to help spur new home construction. Even with government intervention, however, mortgage rates can't stay low forever. Economists note that interest rates usually hit double digits at least once every decade. Even if the current economy prevents that statistic from holding true for the 2000s, analysts suggest that a few different reasons could cause interest rates to climb:

  • Additional federal debt may cause Treasury Bond yields to rise, in turn resulting in higher mortgage rates.
  • As record numbers of homeowners face foreclosure, some banks hope to recoup some losses by charging above-market rates for new loans.
  • In a less competitive real estate market, mortgage brokers no longer need to advertise discount rates to attract new business.

Take These Steps to Lock In Today's Low Mortgage Rates
Many lenders have downsized their staffs or reduced operating hours, so refinancing your home may take longer now than it would have a few years ago. Experts recommend following a few steps to make the process move more quickly:

  • Learn who actually owns your current mortgage, since it may not be the lender you started with. Submitting a payoff request to the wrong service provider may delay your refinancing.
  • Review real estate transactions online or in your local paper to learn whether property values have risen or fallen in your neighborhood.
  • Use online mortgage calculators to review potential monthly payments and amortization tables. A fixed rate mortgage may cost more per month, but may save you money in the long run.
  • Consider meeting with local lenders or brokers. Personal relationships and community connections have left smaller banks relatively untouched by the subprime mortgage crisis, putting them in a stronger position to lend.

By planning and researching your refinancing deal now, you stand a stronger chance of locking in a still-low rate. Even if it takes you a few months to find a broker or a lender willing to work with you, most economists predict that mortgage rates are unlikely to rise quickly. They will rise, however, so it makes sense to start your refinancing process as soon as possible.

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